For example, let's say Company XYZ sells $100,000 worth of merchandise to its customers on credit in May. After analyzing its accounts, Company XYZ determines that 2% of that amount will be uncollectible (for various reasons-perhaps some customers filed bankruptcy). The company would then make an entry on its books for an uncollectible expense of $2,000. Therefore, the company’s net receivables for May will be $98,000 ($100,000 - $2,000 = $98,000).

Why it Matters:

The net receivables amount shows how much money the company can expect to collect from its borrowers.

Investors compare net receivables to accounts receivable to find the net receivable percentage. This percentage is important as it shows how effectively the company can collect from its borrowers. The closer a company's net receivables percentage is to 100%, the more effective they are at collecting from customers, and the more financially stable the company is.

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